For those that aren’t familiar with Generally Accepted Accounting Principles, or GAAP, this article is for you. This is a rule-based standard that helps business of all shapes and sizes use standardized accounting practices when reporting financial information. It ensures that the financial information that is reported is transparent, consistent and comparable. While it has been around for decades, it can be traced back to the Great Depression in the late 1920s that was thought to be filled with shady financial reporting practices that lead to the calamity. Propel Your Accounting is here to talk about the principles that shape GAAP and how you can navigate these standards as a business.

GAAP Accounting Rules

It is important to understand the rules that make up GAAP. These rules are in place to ensure that companies are presenting and preparing their financial statements in a certain way. Presenting financial statements needs to be done in a clear and consistent way so that it’s easier for people to understand. This makes it possible for to compare the financials of entity with those of another. All entities that are publicly releasing their financial statements must adhere to GAAP principles and procedures. The GAAP also works to provide stakeholders, lenders and others that have a vested interest in a company with useful financial information. All profit, non-profit and government entities must abide by GAAP standards.

Principles that Make Up GAAP Framework

There are many principles used to make up the GAAP framework. This helps to regulate and standardize reporting for all businesses.
– Regularity: All accounting musta here to GAAP standards
– Consistency: From one reporting period to another, the information must be comparable and consistent
– Sincerity: Accuracy and objectivity should be a focus for all organizations
– Permanence of Methods: As financial records are prepared, there should be consistent accounting practices.
– Non-Compensation: Whether the company is in the red or the black, all performance reported should be done without any hope of debt compensation
– Prudence: All financial entries should be done realistic and timely and without speculation
– Continuity: Based on asset valuations, it can be assumed that the entity will remain in business
– Periodicity: Usually, accounting periods are divided by quarters and should be routine and consistent
– Materiality: All information should be factual and provide a clear picture of the financial health of the entity
– Utmost Good Faith: The entire accounting process should be done with truth and honesty

Bookkeeping, Accounting, Business Consulting & HR / Admin Services in the United States of America

The best way to ensure that you are following the GAAP standards as a business is to have the right accountant working with you and your financials. At Propel Your Accounting, we provide you with bookkeeping and accounting services that you can trust because we always follow the GAAP standards. As these standards evolve, we are aware of the changes and ensure that your business is still in compliance. Call us today!